Franchise Business Plan - 3 Reasons Why It Is So Important To Franchisees

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Why a franchise business plan is important

Originally posted on 03/12/2017. Updated on 07/06/2019.

Number one on the list of things to do for any entrepreneur should be to write a business plan. And this is no different for a franchisee. Its a common misconception that just because choosing to buy a franchise is deemed a less risky route to being the boss than independent business ownership, a franchise business plan is not required. However, this isnt the case.

Yes, youre investing in a tried and tested business model. Yes, youll have access to comprehensive training and support from an experienced franchisor. But the responsibility still lies with you, the franchisee, to develop and grow your business within the territory that youve been awarded.

You should view the development of your franchise business plan as a crucial part of the evaluation process that you perform when considering potential franchises to invest in. Not all franchisors will ask that you complete a business plan, but they should if they want you to take ownership of your franchise. Some franchisors may offer you a pre-prepared business plan. Again, this is far from ideal as your plan needs to be unique to you and your business. Ultimately, a good, regularly updated business plan benefits both a franchisor and franchisee and should always be encouraged.

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What makes a franchise business plan so valuable?

The discipline of writing a business plan makes you consider some key questions about the difficulties you may face when developing your franchise, as well as the hopes and dreams you have for the future. Thinking through these issues and expectations before you start your franchise is time well spent. If you encounter a challenge that you hadnt considered once the franchise agreement has been signed, it may be too late to improve the situation.

A business plan will almost definitely be required if you need funding to start your franchise. A bank will want confirmation that you have fully reviewed the opportunity before they will support you to finance the franchise start-up cost. However, if you dont need a third-party source to fund your franchise, a business plan is still extremely beneficial.

A business plan is so much more than simply a vehicle to obtain funding for the franchise start-up cost. Its a way to document your understanding of how your business will work. You can hold yourself accountable to the plan, more effectively examine your progress over time and use it as a means of recruiting quality employees by being able to share your vision for the future. For franchisors and franchisees alike, a well-written and thought through business plan is one of the most valuable documents in franchising.

Top 3 reasons why a prospective franchisee should invest the time to write a business plan

1. A business plan is a great way to concentrate all your focus on the key details of your franchise business, considering everything from the launch of your new venture to how it will operate and how it will continue to grow in the future.

It also forces you to think about factors outside of your control, such as who your competitors are and how your business will deal with external challenges. It is this awareness that will allow you to better prepare to run an effective and profitable franchise. This is a win-win for the franchisor and franchisee and for this reason, your franchisor should provide you with all the information you need to develop a detailed franchise business plan.

2. The financial forecast makes up the main part of your business plan and helps you understand how your franchise will perform. Your plan will contain financial projections that include profit and loss, balance sheet and cash flow.

As youre investing in a franchise that already has experience of trading, the financial element of the plan should be significantly easier to draft than it would be for an independent business start-up. From discussions with your franchisor and financials detailed in the Franchise Disclosure Document (FDD), you should have all the information you need to anticipate how your business will perform.

This is why banks view franchise businesses as less risky than their independent business counterparts, as there is a much greater awareness of when the venture will break even and start to make a profit. However, even if funding isnt needed to cover the franchise start-up cost, you may need finance to grow your business in the future. For this reason, its important to remember that your business plan should be a living document and updated regularly. If you ever need to obtain finance later, youll have all the necessary documentation ready.

3. A well-written plan is also a great way to attract talent. Recruiting quality employees into your franchise increases the ability to maintain consistency of the products, service and brand, which is the key to a successful franchise.

Good prospective employees will want reassurance that theyre joining a secure, successful business, particularly if they aspire to become a franchisee themselves in the future. This may be the start of their franchising journey and theyll want to choose the right first step.

Being able to share your business plan with candidates demonstrates that you understand your business. How the candidates react to the plan will also give you an idea of how interested they are in your business and how aligned their goals are with yours.

Stay up to date

A business plan isnt the sort of document that you create once and thats it; it is crucial to keep it up to date when your business grows and develops. Think of it as a living, breathing guide to your business that must adapt when circumstances change. Therefore, it could be wise to set a reminder to review your plan, so you dont get caught up in other areas of the business and forget.

If youve never written a business plan before it can be quite daunting, but dont let this be an excuse not to develop one for your new franchise. And remember there is an array of templates, guides, software and books to support you through the business plan writing process. Help is there if you need it and, in the long run, youll be thankful that you took the time to understand your franchise before you even opened the doors for business. Take a look below at some general tips for when you write your franchise business plan.

How to Write a Business Plan

1. Keep it short and succinct. Focus on what the reader actually needs to know rather than waffling on. Make sure there are no spelling mistakes, so it looks professional and like you have spent time crafting it.

2. Place more detailed information in the appendix. Such information might include detailed financial forecasts, market research that supports your assertations, technical specifications and the CVs of key personnel. The latter is crucial if you are looking to source outside funding.

3. Stay professional. Place a cover on your plan, include a contents page and start with an executive summary that covers the key points, including the purpose of the plan. If it helps, explain what you are saying you can include charts.

4. Write for an outsider. Regardless of whether the plan is only going to be used internally or not, its best to write as if it were for an outsider. As weve mentioned, include company literature in the appendix and provide information about the past and present status of the franchise.

5. Stick to reality. Its good practice to base the business plan on reality in order to avoid counterproductivity. If you over-optimise your forecasts this could result in increased overheads followed by a cash flow crisis and cost-cutting further down the line. Dont exaggerate, even if you are trying to make the business look appealing to a third party. Potential business partners, employees and financers will see straight through your unrealistic plans. So, for this reason, it is better to address threats or weaknesses rather than ignore them.

6. Review, review, review. When you read through your plan, think about the effect that it will have on the reader, whether thats the bank manager or potential franchisee. Make sure there is evidence to support your claims rather than it being a list of falsifiable statements. Assess the risks, for example, what could go wrong and how you would overcome it. For instance, this could be losing one of your main customers or if your principle supplier shuts down. Also, focus on your executive summary section because this is often what people make their provisional judgements on before deciding if they want to carry on reading. Ask your friends or advisers to read the plan to check whether it is all understandable and convincing enough.

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